Strategy – The World of Choices and their Implications

Peter Boggis discusses five questions that are central to the development of strategy. He argues that strategy is really about making choices that are impossible to reverse or un-do, and that the greatest risks to implementing strategy often rests in the lack of organisational capabilities and embedded mindsets that are difficult to change.

What is ‘strategy’?

There is much talk – and also much confusion – about strategy. So let’s be clear and let’s be simple: strategy is about choices. More specifically, it is about making a small number of choices about things that once decided upon are difficult, if not impossible, to reverse or un-do. A strategic choice about outsourcing all or part of a company’s supply chain or IT services is not a decision that can be un-done either quickly or easily. A strategic choice to focus on growth from new and emerging markets – whilst exiting more mature markets that have flat-lined – is not one that can be reversed easily. A personal decision to emigrate to another country or take up a new position is not one that can be easily reversed.

So, if strategy is about choices, it follows that other options must have been considered, evaluated and rejected in favour of those options selected. As Michael Dell, CEO of Dell Computers, said over a decade ago:

“It’s as important – if not more important – to be clear about what we have decided NOT to do as it is about what we have decided to do.”

One way to think about strategic choices is that we are explicitly selecting between two or more credible options. Take sourcing as an example. As a company or organisation, we can decide between two equally valid alternatives:

 “We are self-sufficient in everything we do within our supply chain.” Or

“We focus on those parts of the supply chain where we can add most differentiated value to customers – and find partners to be excellent at those parts that we choose not to excel at ourselves.”

It is not that one choice is right and the other wrong – it’s more the case that each choice has a very different set of implications. One of the best ways of understanding a choice is to fully understand and stress-test the implications of each choice. For example, the first choice above implies that we will have or develop ALL the capabilities, skills and competencies required across the whole of the supply chain. The second choice implies that we will have, or we will have to develop, critical new capabilities, skills and competencies that are essential to managing third-party relationships for maximum value.

Strategy therefore involves a small number of critical choices about what we will and will not do when faced with a spectrum of options.

What does strategy cover?

Let’s make another, important and clear distinction: strategy is about making choices that deliver on a small number of critical business outcomes. Strategy is not an end in itself – its key purpose is to deliver on the small number of critical business outcomes that define success for the enterprise. Having clarity and alignment of the leadership team around these outcomes is therefore a pre-requisite for a strategy to be successful.

So, if strategy is about choices, what kinds of choices are involved? This is the cause of most confusion in setting strategy – not least because different parts of the organisation will focus on different areas of choice, and the choices they make may not add up to a coherent whole, or worse, may actually be in conflict with one another.

For example, in financial services, the private banking arm would probably focus on a value proposition of customer intimacy or excelling at the quality of the private banking customer experience. However, the back-office services arm, which is often shared across private, retail and corporate banking customers, would most probably focus on a value proposition of operational excellence – which will seek to optimise service levels and cost. These two choices may actually be in conflict unless there are explicit discussions at the right level.

In most commercial organisations, the domains of strategy typically cover:

  • Marketplace choices – the products, services, customer-market segments, geographies and channels to market.
  • Enterprise Operating Model choices – the degree to which the enterprise is horizontally integrated (see Formicio Insight article The Challenges of Horizontal Integration).
  • Sourcing choices – the extent to which services are sourced from external partners.
  • Customer choices – the experiences we want our customers to have.
  • Culture choices – how we want colleagues to feel about their organisation and their work.

Who decides strategy?

The role of functional leaders is to explore and debate critical choices within their own functional areas; the role of the CEO and the leadership team is to reconcile and synthesise across these choices, to identify and resolve conflicts, and make the best overall choices for the enterprise as a whole.

Taking our private banking example above, the enterprise may well decide that delivering a superior private banking client experience is absolutely the correct choice; and that whilst operational excellence is the right choice for Operations, part of its service delivery will be ‘tuned up’ for higher levels of service for Private Banking – and the additional cost will be passed on to the higher-margin Private Banking business. It is essential that these choices – and their implications – are taken consciously and explicitly. Far too often these choices and their implications are ‘fudged’ or compromised rather than being debated in the open.

What is strategy useful for?

So, if strategy is about conscious, explicit choices across a spectrum or landscape of options, what is the on-going value and purpose of strategy once it is formulated? We believe the fundamental uses of strategy include:

  • Creating a clear line of sight between the small number of critical business outcomes and the strategies and plans for achieving and sustaining them. Clarity of these outcomes and clarity of the choices we have made to achieve them are essential for strategy to be successful. Best-in-class companies will talk about ‘strategy on a page’ – a single page or picture that clearly articulates those business outcomes and the strategies to achieve them. One global executive recently described his version of this as being a single slide for the executive board, 10 slides for the leadership/management team and 15-20 slides for the rest of the organisation!
  • Creating alignment around and commitment to the choices taken on the part of the enterprise’s leadership team. We call this building ‘collective leadership’, as opposed to simply ‘individual leadership’. This enables and sustains consistent communication to the whole of the enterprise and the right context for decision taking.
  • Creating another clear line of sight between the top-level strategic choices and the day-to-day decision-making, planning, operations and implementation of the strategy.
  • Providing a context for prioritisation and decisions about where to commit the enterprise’s scarce resources. When John Rice (now Deputy Chairman of GE) was CEO of GE’s Power Systems business in Atlanta, he used to personally chair the Prioritisation Committee and ask how each proposed new initiative contributed to one or more of his three strategic thrusts or themes: Profitability, Growth and Connectivity (with customers and suppliers in the whole eco-system of designing very large power plants).
  • Communicating to and engaging with everyone in the enterprise around the right priorities – and therefore harnessing the entire wisdom, experience and capabilities of the enterprise in pursuing and implementing the strategy.

What’s the greatest risk?

For most organisations the greatest risk is not the choices they make, but the capability to implement them. If strategy is about making choices that take the organisation in a direction it’s not currently headed, then it’s highly probable that it doesn’t have the capabilities it needs to succeed in the new world. To misquote the famous management guru Mike Tyson: “Everyone has a strategy until they get a punch in the mouth”. Inevitably when implementing strategy organisations will get the equivalent of a punch in the mouth, things will not go according to plan and there will be setbacks. It’s therefore important that when making strategic choices due consideration is made to:

  1. The organisational capabilities needed to successfully implement the strategy, and which in turn will need to be developed or acquired.
  2. The challenge of changing existing mindsets. If people see the world in a particular way it will take more than the publication of a strategy to get them to see the world through new lenses.

Making strategic choices is deceptively simple and inherently difficult

Strategy is both deceptively simple – involving a small number of critical choices that cannot easily be reversed in the pursuit of a small number of critical business outcomes – and inherently difficult – requiring, grown-up, adult, ‘crucial’ conversations within and across the leadership team about the rationale for one choice versus another. Furthermore, strategy should not be confused with planning and prioritisation, which although difficult and complex do not involve the kind of irreversible choices involved in strategy. In a fast-moving and constantly-changing world, strategy should be living and dynamic, rather than static and some kind of one-off exercise.

An ancient Japanese proverb says: “Vision without action is a daydream; action without vision is a nightmare”.  In our world, strategy and execution are both equally and critically important to succeed.

I welcome your thoughts.

Peter Boggis
peter.boggis@formicio.com

Formicio Insight Article: Strategy – The World of Choices and their Implications

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